The past 18 months have seen an unprecedented and unpredicted spike in interest in starting small businesses. Whether driven by necessity, or simply by a desire to do "something different", starting a business requires careful consideration.
If there’s one thing that 2020 & 2021 taught us, it’s that people of all ages and backgrounds have the appetite to start their own business. In fact, there were 4.3 million businesses that filed paperwork last year, according to data from the Census Bureau. This is a 24% increase from the prior year and the most in two decades.
The first half of 2021 was much of the same.
Over the last 18 months, the spike has been an unpredicted but apparent shift after a 40-year decline in U.S. entrepreneurship. The reasons for this are evident:
1. Low-interest rates make it easy to borrow capital
2. More venture capital dollars are flowing through the system than ever before
3. Work from home makes it easy to balance working with starting a side hustle
4. Technology makes it easier than ever to get something off the ground
But there is another big reason that is influencing this trend:
People are using the extra time to take a step back, assess what’s important in their lives and rearrange their priorities – and in many instances this means their career.
While entrepreneurship can be rewarding, it can also be incredibly tough. According to Fundera, only 30% of new businesses will make it to their 10th year.
So, if you’re an entrepreneur or thinking about starting that small business, what are the trade-offs, and how can you prepare? We cover the three important items to check off on your list.
1. Ensure You Have an Income Runway
When you’re getting your business off the ground, one thing that’s for sure: Your pocketbook may hit some volatility. While entrepreneurship may bring you riches down the road, the early days often mean you’re dealing with no income for months or even years. So, you must get your cash in order.
First, write down your cash balance at the start when you plan to launch your business and set a timeframe or a runway. Next, determine what your initial monthly expenses may look like for both your business and your personal life. Think rent, food, electricity, kid’s school, technology, internet, services, etc. The key is to get the total picture. Next, determine your current cash balance at the end of the time you’re measuring.
Your income burn determines your runway.
2. Get Your Business Plan or Idea in Order and Tested
Once you have your idea on paper, it’s time to test the concept. Generally, there is no hard and fast rule, but getting in front of 50 potential customers or clients can give you a signal to test any new business idea.
The best way to do this? Cold outreach on LinkedIn. Most people are happy to give their opinion on an idea via a coffee (or virtual coffee chat). Aim to reach out to 100-150 people to get 50 interviews, document the information and feedback you receive, and at the end of it you should have a path forward to build our small business.
Don’t have access to 50 people? Colleagues, university alumni, professional networks can also be great resources. Generally, you want to stay away from friends and family as they may have bias.
3. Get Comfortable with a New Schedule
A New York Enterprise Report survey reported that entrepreneurs work twice as much as standard employees. What does this mean? You must get comfortable with a new schedule and get those around you comfortable.
When it comes to entrepreneurship, not only will there be trade-offs with friends and family, but you’ll be pulled in numerous directions and have to wear multiple hats. Accounting, sales, product, marketing, finance – in most small businesses, one or two people are doing these functions in the first 3-12 months. And if you’re not careful, you’ll spend too much time working in the business rather than on the business.
Therefore, it’s critical to respect your time and your calendar. To make time for deep work and make time for life outside of work. And to time block out certain pockets, so you don’t get bogged down with task that doesn’t add value.
The easiest way to do this: Time blocking. Setting aside chunks of time through the day or week to tackle heavier tasks.
There’s nothing quite like the experience and autonomy that comes with launching or being a part of a small business. But just like anything else in life, there will always be trade-offs, and being an entrepreneur is no different. Speaking with a trusted resource, like a financial advisor, can help you think through and navigate the ins and outs of the start-up scene, in addition to making sure you have access to the professional resources that can help you build and grow your business.
NY Times: Start-Up Boom in the Pandemic Is Growing Stronger
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